Logitech Delivers Strong Q2 Sales and Profit Growth

Transcription

1 Editorial Contacts: Ben Lu, Vice President, Investor Relations - USA (510) Krista Todd, Vice President, Communications - USA (510) Ben Starkie, Corporate Communications - Europe +41 (0) Logitech Delivers Strong Q2 Sales and Profit Growth NEWARK, Calif. October 23, and LAUSANNE, Switzerland, October 24, Logitech International (SIX: LOGN) (Nasdaq: LOGI) today announced financial results for the second quarter of Fiscal Year Q2 sales were 634 million, up 12 percent in US dollars and 11 percent in constant currency, compared to Q2 of the prior year. Q2 GAAP operating income grew 12 percent to 60 million, compared to 53 million in the same quarter a year ago. Q2 GAAP earnings per share (EPS) grew 21 percent to 0.34, compared to 0.28 in the same quarter a year ago. Q2 non-gaap operating income grew 12 percent to 72 million, compared to 65 million in the same quarter a year ago. Q2 non-gaap EPS grew 14 percent to 0.40, compared to 0.35 in the same quarter a year ago. We delivered another strong quarter of growth, said Bracken Darrell, Logitech president and chief executive officer. Gaming and Video Collaboration categories showed particular strength and momentum. And we have a diverse and strong portfolio overall. We re entering the second half of the year with a wide range of exciting products ahead of the holiday season. Outlook Logitech s outlook for Fiscal Year 2018 is 10 to 12 percent sales growth in constant currency and 260 to 270 million in non-gaap operating income. Prepared Remarks Available Online Logitech has made its prepared written remarks for the financial results teleconference available online on the Logitech corporate website at

2 Financial Results Teleconference and Webcast Logitech will hold a financial results teleconference to discuss the results for Q2 FY 2018 on Tuesday, October 24, at 8:30 a.m. Eastern Daylight Time and 2:30 p.m. Central European Summer Time. A live webcast of the call will be available on the Logitech corporate website at Use of Non-GAAP Financial Information and Constant Currency To facilitate comparisons to Logitech s historical results, Logitech has included non-gaap adjusted measures, which exclude share-based compensation expense, amortization of intangible assets, purchase accounting effect on inventory, acquisition-related costs, change in fair value of contingent consideration for business acquisition, restructuring charges (credits), gain (loss) on investments in privately held companies, investigation and related expenses, non-gaap income tax adjustment, and other items detailed under Supplemental Financial Information after the tables below. Logitech also presents percentage sales growth in constant currency to show performance unaffected by fluctuations in currency exchange rates. Percentage sales growth in constant currency is calculated by translating prior period sales in each local currency at the current period s average exchange rate for that currency and comparing that to current period sales. Logitech believes this information, used together with the GAAP financial information, will help investors to evaluate its current period performance and trends in its business. With respect to the Company s outlook for non-gaap operating income, most of these excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Therefore, no reconciliation to the GAAP amounts has been provided for Fiscal Year About Logitech Logitech designs products that have an everyday place in people's lives, connecting them to the digital experiences they care about. More than 35 years ago, Logitech started connecting people through computers, and now it s a multi-brand company designing products that bring people together through music, gaming, video and computing. Brands of Logitech include Logitech, Ultimate Ears, Jaybird, Logitech G and ASTRO Gaming. Founded in 1981, and headquartered in Lausanne, Switzerland,

3 Logitech International is a Swiss public company listed on the SIX Swiss Exchange (LOGN) and on the Nasdaq Global Select Market (LOGI). Find Logitech at the company blog # # # This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding: our preliminary financial results for the three and six months ended and potential adjustments to the preliminary financial results (see the Note following the financial statements and supplemental information), innovation, product portfolio and new products, outlook for Fiscal Year 2018 operating income and sales growth, and the timing of filing our periodic reports with the Securities and Exchange Commission (the SEC ) and the SIX Swiss Exchange. The forward-looking statements in this release involve risks and uncertainties that could cause Logitech s actual results and events to differ materially from those anticipated in these forward-looking statements, including, without limitation: if our product offerings, marketing activities and investment prioritization decisions do not result in the sales, profitability or profitability growth we expect, or when we expect it; if we fail to innovate and develop new products in a timely and cost-effective manner for our new and existing product categories; if we do not successfully execute on our growth opportunities or our growth opportunities are more limited than we expect; the effect of pricing, product, marketing and other initiatives by our competitors, and our reaction to them, on our sales, gross margins and profitability; if our products and marketing strategies fail to separate our products from competitors products; if we are not able to maintain and enhance our brands; if we do not successfully execute on strategic acquisitions and investments; if we do not fully realize our goals to lower our costs and improve our operating leverage; if there is a deterioration of business and economic conditions in one or more of our sales regions or product categories, or significant fluctuations in exchange rates. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Logitech s periodic filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, and our Annual Report on Form 10-K for the fiscal year ended March 31,, available at under the caption Risk Factors and elsewhere. Logitech does not undertake any obligation to update any forward-looking statements to reflect new information or events or circumstances occurring after the date of this press release. Note that unless noted otherwise, comparisons are year over year. Logitech, Logicool, Logi and other Logitech marks are owned by Logitech and may be registered. All other trademarks are the property of their respective owners. For more information about Logitech and its products, visit the company s website at (LOGIIR)

4 (In thousands, except per share amounts) - unaudited GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (A) Net sales Cost of goods sold Amortization of intangible assets and purchase accounting effect on inventory Gross profit Three Months Ended Six Months Ended 634, ,304 1,164,158 1,044, , , , ,893 2,011 1,163 3,515 2, , , , ,499 Operating expenses: Marketing and selling 107,386 93, , ,664 Research and development 36,647 32,632 71,746 64,583 General and administrative 25,205 25,290 50,559 50,945 2,491 1,748 3,881 3,041 Amortization of intangible assets and acquisition-related costs Change in fair value of contingent consideration for business acquisition (2,930) Total operating expenses Operating income Interest income (expense), net 153, , ,233 59,933 53,411 91,358 79,266 2, (90) Other income (expense), net 459 (683) Income before income taxes 61,440 Net income 168,799 1,048 Provision for (benefit from) income taxes (4,908) 4,087 52,638 5,593 (570) 93,011 (1,349) (1,691) 77,636 8,650 57,353 47,045 94,360 68,986 Basic Diluted Net income per share: Weighted average shares used to compute net income per share: Basic 164, , , ,176 Diluted 169, , , ,926 Cash dividend per share

5 (In thousands) - unaudited March 31, CONDENSED CONSOLIDATED BALANCE SHEETS (A) Current assets: Cash and cash equivalents 398, ,533 Short-term investments 6,789 Accounts receivable, net 279, ,179 Inventories 329, ,401 Other current assets 47,721 41,732 Total current assets 1,062,614 1,027,845 Non-current assets: Property, plant and equipment, net 87,355 85,408 Goodwill 271, ,741 Other intangible assets, net 93,846 47,564 Other assets 138,144 88,119 Total assets 1,653,113 1,498,677 Current liabilities: Accounts payable 386, ,805 Accrued and other current liabilities 229, ,273 Total current liabilities 616, ,078 Non-current liabilities: Income taxes payable 33,241 51,797 Other non-current liabilities 80,903 83,691 Total liabilities 730, ,566 Shareholders equity: Registered shares, CHF 0.25 par value: 30,148 30,148 Issued and authorized shares 173,106 at September 30 and March 31, Conditionally authorized shares 50,000 at September 30 and March 31, Additional paid-in capital 29,940 26,596 Shares in treasury, at cost 8,745 at and 10,727 at March 31, (156,589) (174,037) Retained earnings 1,118,134 1,074,110 Accumulated other comprehensive loss (98,803) (100,706) Total shareholders equity 922, ,111 Total liabilities and shareholders equity 1,653,113 1,498,677

6 (In thousands) - unaudited Three Months Ended CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (A) Six Months Ended Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization of intangible assets Gain on investments in privately held companies 57,353 47,045 94,360 68,986 10,220 10,511 19,368 23,616 3,645 2,159 6,238 3,867 (695) Loss on disposal of property, plant and equipment (171) (436) 15 Share-based compensation expense 10,978 8,450 Deferred income taxes (2,054) 663 (11,933) (2,930) (4,908) Change in fair value of contingent consideration for business acquisition Changes in assets and liabilities, net of acquisitions: (172) 12 21,683 16,967 (385) Accounts receivable, net (57,762) (48,340) (93,464) (97,001) Inventories (36,938) (18,310) (57,327) (28,317) Other assets (5,402) (3,567) Accounts payable 71,489 40,907 Accrued and other liabilities 20,464 35,522 (7,739) 25,387 68,383 74,869 67,500 91,886 (7,153) (6,623) (17,188) (14,758) (160) (160) (520) (480) (85,000) (13,000) (85,000) (66,987) Net cash provided by operating activities (8,490) 110,136 (4,738) 83,676 Cash flows from investing activities: Purchases of property, plant and equipment Investment in privately held companies Acquisitions, net of cash acquired Proceeds from return of investment in privately held companies Changes in restricted cash Purchases of short-term investments (6,789) Purchases of trading investments (390) Proceeds from sales of trading investments 410 Net cash used in investing activities (1,042) 1,065 (6,789) (999) 1,057 (5,271) 5,296 (98,845) (19,760) (109,202) (81,485) (104,248) (93,093) (104,248) (93,093) (10,058) (18,472) (10,682) (42,894) 17,431 13,885 30,000 14,484 (2,023) (1,862) (23,706) (11,047) (98,898) (99,542) (108,636) (132,550) Cash flows from financing activities: Payment of cash dividends Purchases of registered shares Proceeds from exercises of stock options and purchase rights Tax withholdings related to net share settlements of restricted stock units Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents 551 Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of the period Cash and cash equivalents, end of the period (477) 1,653 (1,845) (128,809) (44,910) (148,685) (123,994) 527, , , , , , , ,201

7 (In thousands) - unaudited NET SALES Three Months Ended Six Months Ended SUPPLEMENTAL FINANCIAL INFORMATION Change Change Net sales by product category: Pointing Devices 124, ,300 1 % 246, ,083 3% Keyboards & Combos 119, , , ,535 PC Webcams 27,510 24, ,135 49,569 7 Tablet & Other Accessories 30,817 20, ,035 34, Video Collaboration 46,131 28, ,748 52, Mobile Speakers 90,550 97,172 (7 ) 153, ,468 (1) Audio-PC & Wearables 63,215 62, , ,833 (5) Gaming 113,754 79, , , Smart Home 18,370 11, ,836 22, Other (1) (64 ) 204 1,023 (80) Total net sales 634, , ,164,158 1,044, (1) Other category includes products that we currently intend to transition out of, or have already transitioned out of, because they are no longer strategic to our business.

8 (In thousands, except per share amounts) - Unaudited GAAP TO NON-GAAP RECONCILIATION (A)(B) Three Months Ended SUPPLEMENTAL FINANCIAL INFORMATION Gross profit - GAAP Share-based compensation expense Amortization of intangible assets and purchase accounting effect on inventory Gross profit - Non-GAAP 228,732 1, , ,400 1, ,499 1,313 1,163 3,515 2, , , , % 36.6 % 168,799 9,887 2, % 37.0 % 153,462 7,812 1,748 Operating income - Non - GAAP % of net sales - GAAP % of net sales - Non - GAAP 331,042 19,881 3,881 (4,908) (61) 74 (116) 143, % 25.1 % Operating income - GAAP Share-based compensation expense Amortization of intangible assets Purchase accounting effect on inventory Acquisition-related costs Change in fair value of contingent consideration for business acquisition Restructuring credits, net Investigation and related expenses 36.3 % 36.7 % (2,930) 159,412 % of net sales - GAAP % of net sales - Non - GAAP 59,933 10,978 3, , % 25.5 % 53,411 8,450 2, ,358 21,683 6, ,042 (4,908) (61) 74 (116) 72, % 11.4 % 57,353 10,978 3, ,846 Net income - Non - GAAP 67,255 57,930 Net income per share: Diluted - GAAP Diluted - Non - GAAP (2,930) 47,045 8,450 2, (11) , % 26.5 % 94,360 21,683 6, ,042 79,266 16,967 3, ,247 (11) , % 9.8 % (4,908) 74 (171) (379) 165, ,233 15,654 3, % 9.9 % (61) (695) (1,890) 169, , % 11.5 % 36.0 % 36.4 % 28.4 % 26.8 % (2,930) Net income - GAAP Share-based compensation expense Amortization of intangible assets Purchase accounting effect on inventory Acquisition-related costs Change in fair value of contingent consideration for business acquisition Restructuring credits, net Investigation and related expenses Gain on investments in privately held companies Non-GAAP income tax adjustment Shares used to compute net income per share: Diluted - GAAP and Non - GAAP 2,011 Less: Change in fair value of contingent consideration for business acquisition Less: Restructuring credits, net Less: Investigation and related expenses Operating expenses - Non-GAAP 231,834 Gross margin - GAAP Gross margin - Non-GAAP Operating expenses - GAAP Less: Share-based compensation expense Less: Amortization of intangible assets and acquisition-related costs Six Months Ended 68,986 16,967 3, ,247 (116) (436) (10,982) (11) 612 (172) (1,054) 106,995 91, , ,926

9 (In thousands) - unaudited SHARE-BASED COMPENSATION EXPENSE SUPPLEMENTAL FINANCIAL INFORMATION Three Months Ended Six Months Ended Share-based Compensation Expense Cost of goods sold 1, ,802 1,313 Marketing and selling 4,343 3,244 8,724 6,681 Research and development 1, ,176 1,831 General and administrative 3,911 3,651 7,981 7,142 10,978 8,450 21,683 16,967 (3,677) (1,886) (14,959) (3,701) Total share-based compensation expense Income tax benefit Total share-based compensation expense, net of income tax 7,301 6,564 6,724 13,266 * Note: These preliminary results for the three and six months ended are subject to adjustments, including potential adjustments, which we currently estimate not to be material, as we continue to verify information provided by a new third-party North American logistics service provider and distribution center added during the latter half of the second quarter of Fiscal Year 2018 and subsequent events (as required pursuant to applicable accounting rules) that may occur through the date of filing our Quarterly Report on Form 10-Q for the quarter ended with the SEC (the 10-Q ). Upon completion of our additional work to verify such information, the completed financial information for the three and six months ended will need to be reviewed by our independent registered public accounting firm prior to filing the 10-Q with the SEC and our semi-annual report with the SIX Swiss Exchange. We are working to complete and file all periodic reports within the applicable filing deadlines of the SEC and the SIX Swiss Exchange. (A) Preliminary valuation from the business acquisition The preliminary fair value of assets acquired and liabilities assumed from the business acquisition during the current period is included in the tables. The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by us at the time of the acquisition. As additional information becomes available, such as finalization of purchase price adjustment and the finalization of the estimated fair value of the assets acquired and liabilities assumed, we may revise our preliminary or interim estimated fair value of the assets acquired and liabilities assumed during the remainder of the measurement periods (which will not exceed 12 months from the acquisition dates). Any such revisions or changes may be material, and may have a material impact over our financial condition and results of operations. (B) Non-GAAP Financial Measures To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use a number of financial measures, both GAAP and non-gaap, in analyzing and assessing our overall business performance, for making operating decisions and for forecasting and planning future periods. We consider the use of non-gaap financial measures helpful in assessing our current financial performance, ongoing operations and prospects for the future as well as understanding financial and business trends relating to our financial condition and results of operations. While we use non-gaap financial measures as a tool to enhance our understanding of certain aspects of our financial performance and to provide incremental insight into the underlying factors and trends affecting both our performance and our cash-generating potential, we do not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, we believe that disclosing non-gaap financial measures to the readers of our financial statements provides useful supplemental data that, while not a substitute for GAAP financial measures, can offer insight in the review of our financial and operational performance and enables investors to more fully understand trends in our current and future performance. In assessing our business during the quarter ended, we excluded items in the following general categories, each of which are described below:

10 Share-based compensation expenses. We believe that providing non-gaap measures excluding share-based compensation expense, in addition to the GAAP measures, allows for a more transparent comparison of our financial results from period to period. We prepare and maintain our budgets and forecasts for future periods on a basis consistent with this non-gaap financial measure. Further, companies use a variety of types of equity awards as well as a variety of methodologies, assumptions and estimates to determine share-based compensation expense. We believe that excluding share-based compensation expense enhances our ability and the ability of investors to understand the impact of non-cash share-based compensation on our operating results and to compare our results against the results of other companies. Amortization of intangible assets. We incur intangible asset amortization expense, primarily in connection with our acquisitions of various businesses and technologies. The amortization of purchased intangibles varies depending on the level of acquisition activity. We exclude these various charges in budgeting, planning and forecasting future periods and we believe that providing the non-gaap measures excluding these various non-cash charges, as well as the GAAP measures, provides additional insight when comparing our gross profit, operating expenses, and financial results from period to period. Purchase accounting effect on inventory. Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company s cost of manufacturing plus a portion of the expected profit margin. The non-gaap adjustment excludes the expected profit margin component that is recorded under business combination accounting principles associated with our business acquisitions. We believe the adjustment is useful to investors because such charges are not reflective of our ongoing operations. Acquisition-related costs and change in fair value of contingent consideration for business acquisition. We incurred expenses and credits in connection with our acquisitions which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition related costs include all incremental expenses incurred to effect a business combination. Fair value of contingent consideration is associated with our estimates of the value of earn-outs in connection with certain acquisitions. We believe that providing the non-gaap measures excluding these costs and credits, as well as the GAAP measures, assists our investors because such costs are not reflective of our ongoing operating results. Restructuring charges (credits). These expenses are associated with re-aligning our business strategies based on current economic conditions. We have undertaken several restructuring plans in recent years. In connection with our restructuring initiatives, we incurred restructuring charges related to employee terminations, facility closures and early cancellation of certain contracts. We believe that providing the non-gaap measures excluding these charges, as well as the GAAP measures, assists our investors because such charges (credits) are not reflective of our ongoing operating results in the current period. Gain (loss) on investments in privately held companies. We recognized gain (loss) related our investments in various privately-held companies, which varies depending on the operational and financial performance of the privatelyheld companies in which we invested. We believe that providing the non-gaap measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operations. Investigation and related expenses. These expenses are forensic accounting, audit, consulting and legal fees related to the Audit Committee s investigation and the formal investigation by and settlement with the Securities and Exchange Commission (SEC), together with accruals based on settlement with the SEC. We believe that providing the non-gaap measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operations. Non-GAAP income tax adjustment. Non-GAAP income tax adjustment primarily measures the income tax effect of non-gaap adjustments excluded above and other events; the determination of which is based upon the nature of the underlying items, the mix of income and losses in jurisdictions and the relevant tax rates in which we operate. Each of the non-gaap financial measures described above, and used in this press release, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-gaap financial measures as an

11 analytical tool. In particular, these non-gaap financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and may be reflected in the Company s financial results for the foreseeable future. We compensate for these limitations by providing specific information in the reconciliation included in this press release regarding the GAAP amounts excluded from the non- GAAP financial measures. In addition, as noted above, we evaluate the non-gaap financial measures together with the most directly comparable GAAP financial information. Additional Supplemental Financial Information - Constant Currency In addition, Logitech presents percentage sales growth in constant currency to show performance unaffected by fluctuations in currency exchange rates. Percentage sales growth in constant currency is calculated by translating prior period sales in each local currency at the current period s average exchange rate for that currency and comparing that to current period sales.